Outlook Positive for Hong Kong Real Estate Market in 2015

Hong Kong, February 13, 2015 – CBRE today launches its 2015 APAC Real Estate Markets Outlook report in Hong Kong, providing an insight into the key trends for the year ahead in the office, retail, industrial and investment real estate sectors in the region.

For Hong Kong outlook is positive. The report illustrates that economic momentum continues to increase, stimulating stronger occupier demand which will result in low vacancy risks. Together with the structural supply shortage and lack of fast-track supply replenishment solutions from the Government, it looks like the territory will experience improving market outlook favorable for investment in 2015.

Marcos Chan, Head of Research, CBRE Hong Kong, Macau and Taiwan,​commented on the outlook, “We will see more bullish demand from the financial sector this year across the region, and more non-bank financing activity looking for opportunities in mature markets. Hong Kong is seen as a major target. Though there may be a risk factor for Hong Kong to follow the US Federal Reserve in raising interest rates this year, any interest rate hikes are expected to be mild and will have minimal impact on investment sentiment.”

Hong Kong will also continue to enjoy the economic benefits brought about by the growing integration with China. “Decentralized office and logistics facilities will register promising value growth in 2015,” added Chan. “This is not only a result of the fundamental strength of Hong Kong’s trade and economy, but a positive spin brought about by the Shanghai/Hong Kong Stock Connect. “

On an Asia Pacific level, CBRE forecasts that economic growth will remain ahead of the world average in the coming years, driven by rapid urbanization, demographic growth, the expanding middle-class and increasingly wealthy households, which will translate into stronger demand for high quality property especially suburban retail malls and residential housing. Asia Pacific will continue to outperform in 2015—with Oxford Economics projecting 4.4% economic growth, compared to 2.9% globally. Meanwhile, CBRE estimates that overall investment turnover in Asia Pacific will increase by 5% year-on-year to US$118 billion in 2015.

Total commercial real estate investment turnover in As​ia Pacific

US$10 million and above, office, retail, industrial, hotel and mixed-use properties only

Source: CBRE Research, January 2015

The region’s investment growth is supported by a number of factors, including newly raised private equity real estate funds; an increase in institutional investors’ allocations to Asia Pacific; growing activity by Asian institutional investors and adequate debt financing.

Current corporate and investor confidence in the region remains intact and is supporting firm demand from both real estate occupiers and investors. CBRE expects rental and capital value growth of around 2-4% for the office, retail and industrial sectors in 2015.

-Office: Hong Kong will be a hub for Chinese companies to expand, particularly those in the banking and finance sectors. Demand for Grade A office space will pick up from 2014, resulting in an uptick in rents in 2015. An average rental growth of 5% is expected for the overall market, while Central may see a stronger growth of 10%.

In Asia Pacific, driven by Tokyo, Bangalore and Singapore markets, office rents will continue to record steady growth, however, the rate of growth will slow to 3.2% from 3.6%. Corporates will continue to be influenced by cost control, resulting in cautious expansion. Focusing on long-term portfolio strategy and workplace improvement, companies are willing to consider opportunistic upgrades and activity-based workplaces.

-Retail: Hong Kong’s driving retail force will come from mid-tier brands in 2015. Retailers’ affordability for prime street shops will fall although high margin trades such as watch and jewelry and high-end fashion will remain a key occupier group for street shops in prime locations. Average rents are expected to experience a drop of 5% with those for less prominent locations falling more.

The region will see growth in rents continue but at a slower pace—rental growth is projected to ease at 2.4% from 5.4%. With rents growing by 10%, Tokyo will be top performer in the region, followed by Beijing and Shanghai. With increasing competition and rising operating costs, retailers in the region will focus on leasing prime space in key growth markets.

-Industrial: 2015 will see stronger logistic rents on the back of strong demand, particularly in Hong Kong, Osaka and Shanghai. Hong Kong will continue to experience a supply-side squeeze for logistics facilities due to the high rent / low vacancy environment. 3PLs will continue to use Hong Kong as a major trans-shipment hub.

The strong growth of e-commerce and drive for greater operational efficiency will result in solid demand for logistics space in most markets in the region, with the overall logistics rental growth forecast in Asia Pacific to be 2.9%.

​​​​​​

​​

Disclaimer:

Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.